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Fuel oil trend

Rotterdam: $ 2 higher. Singapore: $ 1 lower. US Gulf: $ 1 higher.

Winter to shale oil: Freeze! (Brent: $107.3)

Although artic temperatures sweep across North America, the shale oil production in North Dakota has so far not been affected in any major way. As temperatures dip towards minus 40C (without accounting for the chill factor), transportation of the produced oil becomes more difficult as trucks have difficulties maneuvering on the slippery roads. We do, however, not see a major setback in production and availability of U.S. crude oil - during previous occasions such low temperatures resulted approximately in a loss of 4% production which would be rather neglectable volume on a global scale. There is, however, a situation ongoing in the heating oil/diesel market that is worth keeping an eye out for. Europe, which usually imports huge amounts of diesel and heating oil from the U.S., is now sending products the other way. The U.S. has seen its distillate inventories hit multiyear lows just as demand is increasing dramatically due to the cold weather. The inventory situation for European diesel/heating oil does not look much better, and we could see a big increase in diesel/heating oil versus other products if the weather situation in the U.S. continues.

OPEC production for Dec13 came out just above 29.5 mbpd well below the official target of 30 mbpd. The major reason production came out below target, was due to supply disruptions. Cut-backs in Saudi Arabian production however also played a major part. We do not see supply disruptions ease anytime soon (even if Libyan production is partly restarted, the security situation is still far from optimum).

Recommendation

We expect the present dip in oil prices to be short-term and the level could be a buying opportunity for oil consumers if it fits your hedging strategy. We expect major support around $104-104.5 but currently the upside looks to have more potential than the downside, especially for lighter products.